The financial and legal risks when a buyer is under contract to purchase a property are significant. In my almost 6 years of experience in real estate, I have come across a few different scenarios with buyers that I believe are worth sharing with you.
Any lender will cover the basics or “Mortgage 101″ with you when you apply for a loan. My goal here is to go over “beyond the basics” about mortgages since most buyers do not seem to know and understand them.
1. Have you been “approved” online? Get an approval letter from a local lender.
One of the biggest mistakes buyers make is applying for a loan on-line. Buyers are attracted to the low interest rates offered without understanding that there is more to a loan than interest rates.
On-line lenders qualify buyers based on very basic criteria -such as credit score, income and employment history- but do not seem to ask for any other crucial documentation their underwriting department will be asking for. My advise to you: get qualified by a local lender -2 if all possible-.
2. Employment changes? Tell your lender!
I had a client who was “approved” for a loan based on the last two years’ income tax statements. The loan officer, never asked my client if he still had the same income at the time he was applying for a home loan. My client did not think that sharing with the lender that his job had gone from a 40-hour-week job to a 30-hour-week job would be important. Three days before closing, the lender completed the VOE -verification of employment- to find out that my client’s income had been significantly reduced due to the cut in work hours. My client no longer qualified to buy the property. And he never did. There was nothing him or I could do to save the deal.
3. You won’t be moving into the property within 60 days after closing? Tell your lender!
I had a buyer who did not share with the lender that their intention was not to move into their property right away so they were approved for an owner-occupied loan. I knew my client’s intention but having advised them to disclose their situation to the lender, I assumed the lender knew. My client was forced to move into their property after closing to avoid committing mortgage fraud.
3. Your lease will go beyond the closing date?
Tell your lender! I had a buyer that did not share with the lender that they would be responsible for the lease for 6 more months after closing. A week before closing their loan was denied. My client did not have the savings to satisfy the lender’s requirements and the closing never occurred.
4. Do you have money in your account that does not belong to you? Tell your lender!
While still in the process of finding the “dream home”, my buyer casually shared with me that part of the money she had in her savings account belonged to a family member. My client stated that her relative could ask for that money “tomorrow” if they needed it. I explained to my client the risks and advised her to share this information with the lender. After she did, the loan was denied. My client did not have money to pay for closing costs.
5. Does someone owe you money? Tell your lender!
I had a buyer who deposited a check in their checking account that a “friend” owed him. The lender requested a written explanation of that deposit. My client’s “friend” would not put anything in writing and the loan was denied. Luckily, this happened while my client was in the option period so he got out of the contract. He had to wait three months to start the buying process. We closed five months later.
6. Has someone told you they would lend you money for your closing costs without them know that they have to sign an affidavit stating that the money they gave you is not a loan but not a gift? Tell your lender! (and get the signed affidavit before going under contract).
My advise to all of my buyers is DISCLOSE, DISCLOSE, DISCLOSE -and the same goes to you. Buyers may be misinformed or they may try to outsmart the lender. Who knows. I tend to believe that misinformation is the culprit, hence the reason for this blog.